How is it possible to embed political risk insurance in a capital budgeting analysis?

What will be an ideal response?

Assuming that political risk insurance would be complete and perfect, it is straightforward to embed political risk insurance in capital budgeting analysis because such insurance simply generates an annual cost. The cost of the premium must be deducted from the cash flows, and the discount rate should only reflect systematic, not political risk. Of course, political risk insurance is typically somewhat incomplete, so it may be necessary to consider cash flow scenarios in which political risk events still lead to loss of cash flows in computing the expected cash flows from a project.